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Falcon Crest Aces (FCA), Inc., is considering the purchase of a small plane to use in its wing-walking demonstrations and aerial tour business. Various information about the proposed investment follows:     

Initial investment	$	190,000
Useful life	$	10	years
Salvage value		20,000
Annual net income generated	$	4,400
FCA's cost of capital		6	%

Assume straight line depreciation method is used.

4. Help FCA evaluate this project by calculating each of the following: Recalculate FCA's NPV assuming the cost of capital is 3 percent. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your final answer to the nearest whole dollar amount.)

Answer 1

Answer:

Calculate net present value assuming the cost of capital is 3%

Year	Cash flows	Depreciation	Salvage value	Total Cash flows	PV at 3%	PV of cash flows
0	-190000	0	0	-190000	1	-190000
1	4400	17000	0	21400	0.97087	20777
2	4400	17000	0	21400	0.94260	20172
3	4400	17000	0	21400	0.91514	19584
4	4400	17000	0	21400	0.88849	19014
5	4400	17000	0	21400	0.86261	18460
6	4400	17000	0	21400	0.83748	17922
7	4400	17000	0	21400	0.81309	17400
8	4400	17000	0	21400	0.78941	16893
9	4400	17000	0	21400	0.76642	16401
10	4400	17000	20000	41400	0.74409	30805
Net Present Value						$7428

Note:
Depreciation = (190000-20000)/10 = 17000
Total cash flow = Cash flows + Depreciation + Salvage value